Invoicing in China

Invoicing in China

When in Rome, be as a Roman, and in China be as a Chinese. When it comes to the national tax invoice management system, one word you must know is Fapiao. This is the Chinese translation to the invoice known in the west, and is very common in the Chinese business environment.

What is a Fapiao?

Fapiao is, in essence, invoicing in China. Put simply, fapiao is legal proof of purchase for a good or service. When a local transaction occurs, the seller issues a fapiao. The invoice is generated by a government supplied software, pre-supplied invoice sheets, and special printers linked to the central taxation system. And just to state the obvious, ALL domestic transactions in China have to be recorded, and fapiaos must be provided. If a seller refuses to issue a fapiao, the buyer is allowed to appeal to the tax bureau.

The fapiao system is run by China’s State Taxation Administration (STA). The governmental body issues, distributes, records and supervises fapiao handling across China. The STA allocates fapiaos to companies in China based on their business scope. For instance, the quota for small taxpayers might include a fapiao booklet that contains 25-50 sheets, and each sheet’s value cannot exceed 10,000 RMB.

Please note that new WFOEs that have just been set up are subject to several restrictions regarding how many invoices they can issue and each invoice’s total value. These conditions vary between different localities in China, and are handled locally at the relevant tax bureau office.

Usages of the fapiao:

• Buyers use the fapiao for reclaiming business expenses
• Sellers use the fapiao for tax offsetting and rebates
• The government uses the fapiao for combatting tax evasions and tracking payments

Types of fapiaos

General Fapiao

These are usually used as evidence of payments. It’s a China tax invoice, if you will. Compared to the other type of fapiao, the general fapiaos are easier to process, and they are more common among small-scale taxpayers, the B2C sector, life services industries and tax-free transactions. General fapiaos can’t be used for VAT deductions purposes.

Special VAT Fapiao

These serve for VAT deduction purposes, in addition to being proof of purchase. They cannot be used by small-scale taxpayers, and are therefore more common in the B2B sector. VAT fapiaos must be kept in a safe place. The penalty for a lost fapiao sheet will be at least equivalent to its original value.

The special VAT fapiao requires filling out more detailed information over three sheets:

• The bookkeeping sheet: serves as the seller’s accounting record
• The tax deduction sheet: serves as proof of the amount of input tax paid by the buyer
• The invoicing sheet: is used by the customer for his/her accounting

Converting to e-fapiao

After the completion of the implementation of the general e-fapiao reform in 2016, and as part of China’s efforts to digitize and streamline commercial procedures, a special VAT e-fapiao pilot program was launched in China in September 2020. Officials predict that the system’s implementation in China’s mega-cities will be completed during 2022, and a full implementation across the country will be achieved by 2025.

The advantages of the e-fapiao

Here are some of the most apparent advantages:

• They are easier and faster to buy, process and deliver
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• A fapiao sheet can be authenticated and verified online before applying for tax return in China
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• Fapiaos are stored online, so they are never lost and can be re-printed
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• E-fapiaos can be easily integrated into the company’s systems and streamline broader processes, e.g., annual reporting, supply chain management, etc.
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• They eliminate the need for paper, ink and delivery services, and they are environmentally friendly

Four practical meanings for businesses

1. Optimization and automation – The shift to e-fapiao is expected to affect not only financial management and accounting in China, but the entire business operation. Hence, this is an opportunity to update and optimize additional business functions, to achieve greater precision and productivity.
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2. Increased transparency – The new system is meant to increase the government’s ability to monitor corporate activity. These digital tools also increase transparency, so it is advisable to implement internal control and supervision systems such as operational audits in China.
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3. Careful handling – As digital fapiaos are easier to generate and can be re-printed, financial teams should pay careful attention to duplicate e-fapiaos and replicas, to prevent repeated reimbursements.
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4. Start preparing today – Currently the usage of e-fapiao in the piloted provinces is still voluntary. However, once digital invoicing in China is fully implemented, companies will be required to comply with all the consequent regulations and be able to operate the new government software. It is highly recommended to start preparing as soon as possible.

At PTL Group, we specialize in financial services in China. Get in touch today and let us support your China operations.

Last updated: Apr 2024